Wet Sidewalks and Bitcoin

Posted On Aug 15, 2017 By Dave Gonigam

  • Bitcoin tidbits: Google Trends, the “hard fork” and big venture capital bucks
  • Retail sales up, gold down (and yes, there’s a connection)
  • Team Trump assumes battle stations for China trade war
  • Solar comeback… bureaucrats allow tainted eggs on store shelves for weeks… an earnest answer to a reader who still doesn’t “get” cryptocurrencies… and more!

Before we share the following chart, we must share the usual warnings about how “correlation does not equal causation.” You know, wet sidewalks don’t cause rain.

That said, there’s a spooky parallel between the price of bitcoin and interest in “bitcoin” as a search term on Google. Here’s a chart of the action going back seven years…

bitcoin chart

Alas, the Google data do not appear to be a leading indicator you can trade off of. At $3,904 this morning, bitcoin is down more than $500 from record heights reached around 9:30 p.m. EDT last night. But search traffic for bitcoin peaked an hour and a half later, before tumbling 20% by early this morning.

This is as good a day as any to address the much-ballyhooed “hard fork” that occurred with bitcoin two weeks ago.

“After three years of cutthroat infighting, on Aug. 1, a consortium of bitcoin miners voted to split the blockchain into two,” explains our cryptocurrency advocate Louis Basenese.

Result? Now there’s original bitcoin and bitcoin cash. “With a market capitalization of $5.3 billion,” says Lou, “bitcoin cash is suddenly the fourth-largest crypto in existence. (Behind bitcoin, ethereum and ripple.)”

What’s the difference between the two? Bitcoin cash can process transactions faster than bitcoin.

That’s a big deal; original bitcoin’s popularity is such that using it to, say, buy linens from Overstock (you can do that) has become a poky process. “With a 1 MB block size limit, bitcoin can only process seven transactions per second,” Lou tells us. “Meanwhile, Visa’s network can handle 56,000 transactions per second.

“Bitcoin cash aims to close that gap.”

As you might already know, Lou says original bitcoin is on its way to $10,000. But he says bitcoin cash is also a buy. That is, if you simply want to play it safe.

But if you’re of the go-big-or-go-home mindset, Lou says you don’t want to miss out on “initial coin offerings.”

“It’s a bit like the IPO for a new stock,” he says. “Except the gains can be up to millions of times higher and thousands of times faster.”

Really, IPOs have become passé. The two big ones this year have been busts. The Snapchat app from Snap Inc. is getting big-footed by Facebook. And Blue Apron, the “meal kit” service, is getting big-footed by Amazon.

Increasingly, venture capital is shying away from Silicon Valley startups… and piling into crypto. “Since 2013,” Lou tells us, “venture capitalists deployed over $1.5 trillion globally to fund almost 600 crypto startups.”

The history of these ICOs has been, in many cases, breathtaking. Ethereum, the second-most popular crypto, has appreciated 66,719% in less than three years since its ICO.

But don’t feel as you’ve missed out… because Lou believes the most lucrative ICO yet is just around the corner. Aug. 28, to be precise. Give it a look right here. (There’s still no long video to watch.)

To the markets… where good economic numbers have knocked the stuffing out of gold.

Gold began slumping around the time The 5 hit your inbox 24 hours ago… but the slide accelerated this morning with the release of July retail sales numbers from the Commerce Department.

The “expert consensus” was counting on a decent number, a 0.3% increase. In the event, they got a 0.6% increase — better than the most optimistic guess among dozens of economists polled by Bloomberg. And previous months’ figures were revised upward.

Nor is that the only positive figure this morning. We also got two early reads on the month of August…

  • New York State manufacturing: The Federal Reserve’s Empire State survey clocked in way better than expected, indeed its highest reading since September 2014
  • Homebuilder sentiment: Also way better than expected is the housing market index from the National Association of Home Builders. It’s now approaching the dizzying heights of earlier this year.

No, none of this means the Federal Reserve plans to reverse course and raise interest rates next month. But that’s how the currency markets are interpreting the news this morning. The dollar index is up to 94, a three-week high. And that’s pushed gold down to $1,271.

Not that stocks are catching much of a bid today, either. All the major U.S. indexes are in the red, though not by much.

The Trump administration just took another step toward trade sanctions on China.

The president signed an order authorizing U.S. Trade Representative Robert Lighthizer to look into whether a “Section 301” investigation is justified. At issue — the extent to which Chinese companies are copying U.S. products.

The outcome is all but a foregone conclusion. Lighthizer is one of a troika of Trump officials who are hawkish on trade; during a gig in the Reagan administration he fought against Japanese trade practices.

“I’ve spoken personally with one of Robert Lighthizer’s closest personal associates,” says our Jim Rickards. “He told me that Lighthizer is as hawkish as ever and is rarin’ to go when it comes to confronting the Chinese. Lighthizer believes he can combat Chinese steel dumping in the 2010s the same way he beat Japanese car dumping in the 1980s.”

Bottom line: “Sanctions on steel dumping by China are definitely coming, and they will be harsh. In fact, the White House plans to go beyond the usual trade statutes to invoke certain national security-related remedies that are immune from Chinese complaints to the World Trade Organization.”

“President Trump’s plan to reignite the fossil fuel industry crushed solar stocks… However, it seems that investors have realized that this industry was way oversold,” says Alan Knuckman, our options maven at the Chicago Board Options Exchange.

“First Solar and SunPower have both nearly doubled since their April lows. Momentum in this sector is HOT.” And little wonder, Alan says, now that by one estimate solar employs more people in U.S. power generation than coal and natural gas combined.

On Monday, Alan spotted intriguing activity in a solar player’s call options — the sort of “someone knows something” indicator flagged by his patent-pending “WPI” tool. This morning, he urged readers to unload half the position for a 50% gain. Not bad for 48 hours.

Yes, there are more trades where that one came from.

Bureaucracy gone wild: Which country is next to fall victim to Europe’s tainted-egg fiasco?

So far the list includes 17 countries. Eggs from the Netherlands — contaminated with a pest-control agent — have been pulled from store shelves all the way from Ireland to Hong Kong.

The trouble originated with a Dutch company improbably called ChickFriend. It was selling a pest-control product to farmers that turned out to contain fipronil, an active ingredient in many flea and tick blockers marketed for Fido and Fluffy… but not safe for animals intended for the dinner (or breakfast) table. Fipronil is known to be hazardous to humans and can damage the liver, kidneys and thyroid.

Word surfaced earlier this month, but it turns out Belgian bureaucrats knew about the problem in June. They didn’t warn the public, however, because doing so would have jeopardized — get this — a fraud investigation.

Now the Belgians are trying to turn it all back on the Dutch, saying Dutch bureaucrats knew about the problem last November. Naturally, the Dutch are denying it.

And everyone’s trying to play the scandal down, saying an adult would have to eat seven tainted eggs in 24 hours to suffer any ill effects from fipronil (a very generous omelet).

On the other hand, the average 3-year-old would have to consume only one-and-a-half eggs to be in danger.

But whatever you do, don’t call it a food-safety crisis…

“OK, these cryptocurrencies, I just don’t get,” writes a reader who we’re sure isn’t alone.

“I do not understand why people are piling into this! From my perspective cryptocurrencies are not real. They are certainly not tangible. The Benjamins in my pocket may be just paper with an assigned value, but at least they are backed by a government and, well, I can touch them and they will still be there if the power goes out. Correct me if I’m wrong, but these are a currency, right? So why are they behaving more like a commodity?

“Commodities at least are physically real and can be used to actually make something of value. They are an asset. Cryptocurrencies seem more like a savings account that swings wildly in value, but they are even less than that. To me they seem to be worth only what the majority thinks they are worth at a given moment or only what the next person is willing to pay. There is nothing actually backing them.

“It feels, well, like horse racing where the value of your winning bet payoff is dependent on everyone else’s interest in the same horse, but if the horse goes lame everyone loses everything. Am I wrong? Is there some great mystical force at play here I am missing?”

The 5: First-blush answer, and we don’t know if you’ll find it satisfying… but there are definite parallels between bitcoin and gold. The quantity of bitcoin is limited; there will never be more than 21 million of them. As of now there are about 16.5 million in existence; only 4.5 million can still be “mined.”

It’s a safe bet that both the built-in scarcity and the mining nomenclature were no accident when the still-anonymous “Satoshi Nakamoto” created bitcoin. The fact that it’s not “backed by” or under the thumb of any government is another appeal.

Put yourself in the shoes of an upper-middle-class Chinese person who came from modest means. You want to do everything you can to preserve what you’ve got… and you know you live in a country where Western-style property rights and the rule of law aren’t operative.

What do you do with your depreciating currency? You acquire anything you can that’s not under the government’s control. So you buy a condo in Vancouver, even if you never plan to visit the place or bother renting it out. Once the city fathers in Vancouver crack down on foreign buying — as happened last year — what do you do next?

Under those circumstances, a cryptocurrency sounds very reasonable indeed. And much of the buying of late has been coming from China. How ‘bout that?

Again, that’s a first-blush answer. There are many other facets to explore, which we will in the weeks to come…

“I think you might attract more customers,” a reader writes, “if you were to use your investment schemes (and I mean that in a positive way) to solicit subscriber funds for investment in said scheme with any profits to be split 50-50, rather than just revealing the scheme’s details to the buyer.

“You might generate a lot of goodwill and profits for all concerned. If the scheme failed to attain its lofty returns, investors would be no worse off. I realize that changes your role and function to broker, but that’s not a complicated transition and allows you the opportunity to show what your many schemes could do.”

The 5: Not a complicated transition?! We’d have to double our head count just to comply with all the rules and regulations. No thanks.

A lot of our editors are refugees from the brokerages or other seamy nooks and crannies of Wall Street, where too often they had to hold their tongues and watch their backs. With us they can speak freely and not worry about what clients think, or advertisers think, or the board of directors thinks.

Subscription revenue (from people just like you) is our industry’s bread and butter. So as long as an editor speaks his truth and his truth resonates with his subscriber base, he’s golden.

That’s a long way of saying we’re very content with the space we’ve carved out for ourselves in financial publishing, thank you very much.

Best regards,

Dave Gonigam
The 5 Min. Forecast

P.S. “The next 35 days could mint more millionaires than bitcoin has in five years,” says Lou Basenese.

If you missed his time-sensitive message, here’s your second chance. If you ignore it, you might be leaving a king’s ransom on the table. (Think six figures.)

But with so many newly minted crypto fortunes lately, demand for this top-shelf research is at a fever pitch. So we’re not sure how long the message will be up.

Go here now for immediate access to this landmark research.


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